Surprise! The Impact of Tipping on Service Industry Workers

There's no getting around it: Tipping requests have increased over the past few years. The online payment company Square says that the share of remote transactions that asked for a tip at the beginning of 2020 was just 43.4%, but the percentage has now jumped to 74.5%.

And it's not just online transactions where consumers are asked to tip more frequently. A survey conducted by software marketplace company Capterra found that 53% of respondents have seen a tip screen at a business in the past year that previously didn't have one and that 51% of people in the survey have even seen a tip screen at self-serve kiosks.

This increase in asking for tips has collided with high costs for nearly everything over the past few years, making tipping a heated personal finance topic among consumers and service industry workers. And while there's no perfect answer to the question of how much you should tip and when, there are a few things to know about the impact tipping has on service industry workers.

How tips impact service industry worker income

The federal minimum wage for tipped employees is $2.13, but many states have a higher minimum. This means that for service industry workers who rely on tips for their income -- like restaurant servers -- the vast majority of their wages are earned from tipping.

According to the Pew Research Center, 92% of Americans leave a tip in a sit-down restaurant (this percentage should be higher!), and data from Statista shows 29% of customers -- the largest group -- leave a tip in the 16% to 20% range. The second-largest group, with 28%, leaves a tip in the 11% to 15% range.

But even with a high percentage of Americans leaving tips at sit-down restaurants, these employees may not be making as much as you think they're making. According to Bureau of Labor Statistics data from 2022, the median wage for waiters and waitresses is $14 per hour.

Come up with a tipping system that works for you

Everyone's personal budget is different, and there's no one-size-fits-all approach to tipping. Pew Research Center data shows that 49% of Americans say the decision to tip depends upon the situation.

But there are some general guidelines that some experts suggest to help you find the right tipping strategy while also allowing room for generosity. Here are a couple of suggestions:

• Dining out: The general rule is to tip 20% when eating at a sit-down restaurant. Some experts suggest using this percentage for food delivery services as well.
• Fast food, fast casual, and coffee shops: This one may be controversial, but unless you receive stellar service or employees pick up after you or bring out your food, then the general suggestion is that you don't need to tip. There's always room for generosity, of course. I frequent coffee shops often and usually leave a tip at places I visit regularly.
• Takeout orders: While no one is bringing the food to you or cleaning up after your meal, leaving something for the staff is generally a good idea. It doesn't have to be in the 15% to 20% range you might leave for sit-down service, but adding a few dollars to your total amount is always a nice gesture.

Your views of tipping will likely differ from someone else's. An old friend of mine used to be a waiter and bartender and is a generous tipper because he knows how much work goes into it. So, if you aren't sure how much to tip or when, ask a friend who's done the job how much they think a reasonable amount is.